The Taliban today denied that they have declared holy war against the US following America's diplomatic response to the attacks, according to a news agency.

A senior Taliban official told the news agency AFP that jihad, or holy war, would only be declared if America invaded Afghanistan or any other Islamic country.

Meanwhile, the Taliban, Afghanistan's ruling militia, discussed the possible extradition of Saudi-born dissident Osama bin Laden to stand trial for his alleged part in last week's attacks.

Diplomatic sources say that the Taliban will hand over Bin Laden to a neutral Muslim country if they can secure international recognition for their rule over Afghanistan and an end to UN sanctions.

Talks with a delegation of high-ranking Pakistani officials about Bin Laden's future began yesterday and are expected to continue later today or tomorrow. Nevertheless, the US is likely to want administer justice itself.

The US defence secretary, Donald Rumsfeld, today raised further doubts about whether the surrender of Bin Laden would be enough to avert a US-led military campaign against terrorism.

"If Bin Laden were not there the organisation would continue doing what it's been doing," he said. "So clearly the problem is much bigger than Bin Laden."

New York goes back to work

A week after the attacks on America, and a day after a steep drop in stock prices, New Yorkers were back at work today in the now heavily guarded financial district.

An army of firefighters and construction workers toiled in the wreckage of the World Trade Centre as hope diminished that anyone would be found alive. There are 201 confirmed dead and 5,422 missing.

Only five survivors have been found - and none since Wednesday - but the mayor, Rudolph Giuliani, said it is too early to give up the rescue effort.

"The simple reality is that we're not going to be able to recover significant numbers of people, but we will continue to try," he said.

Red Cross volunteers distributed fliers telling survivors of the attacks to expect feelings of fear, sadness, anger and even guilt.

"Whenever possible, remember that you are still free and that there is still beauty in the world," the flier read. "It's OK to smile."

Israel and Palestine agree to ceasefire

Israel has ordered a halt to all military action against the Palestinians following the unilateral declaration of a ceasefire by the Palestinian leader, Yasser Arafat, after last week's attacks on the US.

A senior Palestinian official said the Palestinian leadership hoped to open a new chapter with Israel and suggested that the dramatic events of the past week might have created an opportunity for this to happen.

In the wake of the attacks on New York and Washington, the US has urged Israel and the Palestinians to hold truce talks as soon as possible.

Washington is trying to forge an international anti-terrorism coalition against Osama bin Laden - the Saudi-born dissident named by the US as its prime suspect for the strikes - but fears that renewed fighting in the Israeli-Palestinian conflict would disrupt its efforts to bring in Arab states.

Mr Arafat's announcement today, made to 35 foreign diplomats called to his Gaza City office, was the clearest yet, and reflected an apparent eagerness to be seen as supportive of US policy.

He also said he has informed Washington of his "readiness to be part of the international alliance for ending terrorism against unarmed, innocent civilians."

His emerging shift in policy is, however, likely to renew friction with the Islamist militant groups such as Hamas and Islamic Jihad. Senior clergy linked to Hamas issued a religious edict today saying that those who side with America against Muslims are traitors. (Full story)

Strike could create 'more than 1m refugees'

Over 1m people are expected to flee Afghanistan if the US attacks, the UN high commission for refugees (UNHCR) said today.

Roy Herrmann, the head of the UNHCR in Peshawar, Pakistan, said: "We are working on a contingency plan for a million persons at the moment, but the Pakistan government is telling us that we should double our projections."

Although Pakistan officially closed its border with Afghanistan on Monday, fearing that it would be overwhelmed with refugees, it acknowledges that there is no way of preventing Afghans from crossing at the many unguarded points along the 1,560-mile long, mountainous border.

There are already over 2m Afghan refugees living in Pakistan, mostly around the north-western border with Afghanistan. Many live in squalid camps and eke out a living as day labourers.

In the days before the border was closed, few people entered Pakistan through the many inhospitable mountain passes along the border.

The bulk of the refugees were from Kabul and Kandah - the two major cities. They fled Afghanistan by the road crossings at Torkham and Chaman.

Both crossings were calm today but the UNHCR are expecting much larger numbers.

Mr Herrmann said that areas of Afghanistan away from the main cities - such as Herat in the west - were also in a bad situation.

"No resources are going in and the people can't get out. Lots of people are just wandering around in Afghanistan right now," he said.

Bank cuts interest rates

The Bank of England today made a move to buoy up confidence following last week attacks on America - announcing a 0.25% cut in interest rates.

The decision, which will bring the cost of borrowing to the lowest for nearly 30 years, is the first time the Bank of England's monetary policy committee has cut rates outside its scheduled meetings.

Interest rates are now at 4.75%, marking a return to the low rates not seen since the 1960s.

The Bank's move followed earlier, similar actions to support global markets by the Federal Reserve Board, the European Central Bank and Japan. (Full story)

Foreign leaders converge on Washington

A series of foreign leaders, starting with the president of France and South Korea's foreign minister, are visiting Washington this week to extend sympathy for America and compare notes on how the US and the world should respond.

The Korean foreign minister, Han Seung-soo, president of the UN general assembly, is first in line to meet the US secretary of state, Colin Powell, today.

The French president, Jacques Chirac, will arrive later today for dinner with the US president, George Bush. Mr Chirac is expected to emphasise his commitment to fighting terrorism during the discussions.

Mr Powell has taken charge of a diplomatic drive to line up support for a wide range of actions, including political, economic and military measures.

"I am pleased that the coalition is coming together," he said.

"I think everybody recognises that this challenge is one that went far beyond America, far beyond New York City and far beyond Washington."

The British prime minister, Tony Blair, the foreign ministers of Russia, Germany, Saudi Arabia, China and Italy and leading officials from the European Union will be in Washington later this week.

The Indonesian president, Megawati Sukarnoputri, leader of the world's most populous Muslim nation, left the capital, Jakarta, yesterday for a Washington visit.

Indonesia's government condemned the attacks and expressed condolences to the American people, but, after the president's departure, the vice-president, Hamzah Haz, said the terrorist attacks could "cleanse the sins of the United States".

The US ambassador to Indonesia, Robert Gelbard, said he was dismayed by Mr Haz's comments.